Scottish Widows 2022 retirement report finds pension savers risk retiring with £15k less, as economic storm brews

by | Jun 29, 2022

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Wage stagnation and rising living costs are set to worsen the UK’s retirement income crisis, with the average earner in their thirties on track to see their pension pot reduce by £15,000 by the time they retire.

Scottish Widows’ latest Retirement Report reveals that average earners in their 30s who were auto-enrolled in a company pension scheme in 2012 will have potentially contributed £7,000 less by 2024. These ‘lost contributions’ result in an overall £15,000 reduction to the individual’s total pension pot at retirement due to lost compound interest.

Mounting financial pressure

The annual survey found that four out of five adults (81%) are concerned about making ends meet in the current cost of living climate, with three-quarters (76%) saying they need to take action to cope with the financial pressures. The study revealed that:

  • Over a third (35%) plan to cut back on non-essential leisure and holiday spending, while others are being forced to make harder decisions, such as cutting back on essentials like food and utilities (16%).
  • One in ten (11%) UK adults admitted they had reduced their pension contributions or stopped contributing altogether, prior to the cost-of-living crisis truly taking effect.
  • Almost a quarter (24%) had already dipped into their savings. On average, this reduces pension savings by around £37 per month, equivalent to over £2.5bn in lost contributions to the UK economy as a whole per year.

Worries run into retirement

UK pension contribution rates over the past few decades have been chronically low compared to European countries and for the average saver, a joint employee-employer contribution rate of 8 per cent will not be enough to sustain a decent living in retirement, leaving people with less retirement income over and above the basic safety net of the state pensions and retirement benefits.

Over half (57%) of those surveyed said they were concerned about their finances in retirement, while a similar amount (50%) revealed they don’t feel they are preparing adequately for retirement. Almost a fifth (18%) said their pension savings are invested in cash or cash-like assets, or low-risk assets such as UK Government bonds; or that they are planning to invest their pension in such assets.


This means that the average person between 35 and 54 years old – an age when investment returns are important – who holds half of their £36,200 pension savings fully in cash could be exposed to losses of over £1,300 in a single year in real terms, and over £2,100 in two years.

Pete Glancy, Head of Policy at Scottish Widows, said: We are facing a myriad of issues and there are no easy solutions. It’s sadly understandable that households are being forced to make some tough choices in their budgets, but it’s important they do so whilst taking a longer-term look at their finances. Having a decent employer or personal pension in place is one of the best ways to plan for your future financial wellbeing, so people should think twice before making decisions that could result in long-term pain for a short-term gain.

“As a guide, we recommend that an individual should look to save a minimum of 12 per cent of their salary to secure a consistent quality of life, but aiming for at least 15 per cent is more likely to provide a comfortable retirement.”


Pete added: “There are also calls for another Pensions Commission, however, we believe the scope is too narrow. Record-breaking inflation does not just threaten peoples’ ability to save, it can also severely reduce the value of the savings they already have if they are not invested appropriately. The public policy aim should not simply be to help people accumulate the largest possible pension pot, but to explore creative and holistic solutions to help them enjoy the best possible standard of living in retirement.”

Challenges for those approaching retirement

More than 15% of those aged 50 to 59 hold or desire to hold the majority of their retirement savings in cash, and this rises to 29% for those who are retired. It is normal and sensible for individuals nearing or in retirement to shift their assets towards cash and lower-risk investments, but in times of high inflation, holding a large proportion of cash is not only risky, it can also put investments in jeopardy as it will either stay the same or decrease in value.


Rising costs also present different choices for those nearer to retirement. 11 per cent of those in their 50s reported being worried about having to access their pension savings early to support their short-term financial resilience.

Those who take anything out of their pension trigger the Money Purchase Pension Allowance. This reduces the amount they can contribute tax-free each year from £40,000 to just £4,000 – someone earning £33,000 and contributing 12% to their pension will be at the limit.

For more information, please see the full Retirement Report here.


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